The Fulfilment by Amazon (FBA) business model is fast becoming a serious business model in the online business space. Some sites see if as the top way to make money online in 2016. Companies like Amazing.com have developed a whole new breed of entrepreneur and we are starting to get lot’s of requests from Amazon business owners for a valuation for their business. In fact as of writing this post we have 2 Amazon businesses for sale. Selling your FBA business is an attractive investment for someone without the skills and the knowledge to start a business but wants to buy one that is easy to manage. That is why we have analysed 2015 sales data on FBA businesses that have sold to come up with the Amazon FBA business valuation report.
What is your Amazon FBA business worth?
The value of your Amazon business is in it’s ability to produce profit. So for example if your business made $1m in sales in 2015 and your profit (SDE or sellers discretionary cash flow) was $250,000 then your business would be a multiple of that $250,000 in profit. We are seeing the market pay 1-2X profit for Amazon FBA businesses so the business would be valued between $250,000 and $500,000.
The profit of your business is calculated as = Total Sale – Cost of Goods Sold – Expenses + Owners Wage
Where your business sites in the range of 1-2 times profit depends on a range of factors including age of the business, niche, how many SKU’s, growth, competitive landscape of the business.
We have put together some data for transactions in 2015 for Amazon FBA businesses:
***This graph summarises all 15 FBA businesses that were sold in 2015. The total value of all business was $3.19 million. The average multiple of the 15 deals was 1.83 and the average selling price was $181,000.
***This graph shows the average multiple in each price range. For example for businesses worth between $250,000 and $500,000 the average multiple was 2.15.
How to increase the value of your Amazon business?
The amount a buyer is willing to pay for your ecommerce business will all come down to one thing, return-on-investment (ROI) and relative risk. The lower the risk, the higher the price and vice-versa. With that being said, what really makes your Amazon FBA business worth more is mitigating the risk of the business failing in the future by having the following characteristics associated with your online store:
- Age – the older your business the more value it has to a buyer as they can see the track record and growth trends. A business that is 1 year old versus 3 years old is harder to project future earnings which is what a buyer is looking for.
- Niche – a hyper competitive niche like Iphone cases is a much harder market to compete against competitors with than table mats for marble tables. The point is the market matters and your positioning in that market will affect valuation.
- Concentration of products – having one product that makes up 80% of your sales is a big risk to a buyer, by having a diversified portfolio you can demand a higher price.
- Brand – Having your own branded and manufactured product creates a certain level of competitive advantage against copycats who are just reselling of Alibaba.
- Amazon Best Sellers Rank – If your BSR rank has growth consistently over time then that is a good sign to a buyer that you provide a good product and have great customer service.
- Suppliers – having quality suppliers that are dependable, deliver product in a timely fashion, have good terms and reliable fulfilment or orders.
How does the selling process work?
The selling process if fairly straight forward but can be more complex and take more time depending on the size of the business. In general, most sales will be structured like this:
- You decide to sell
- You get a valuation of your business
- You develop a prospectus (all the facts and figures about your business)
- Find potential buyers for your business (whether you use a broker or sell it yourself)
- Negotiate a price with potential buyers (total price and also terms of the deal)
- Transfer the assets & money
- Help train the new buyer to run your business
What does it cost to sell my Amazon FBA business?
A website broker will generally charge 10-15% of the gross sale price to sell your Amazon business depending on the size of the business.
How long does it take to sell my Amazon FBA business?
The time it takes to sell an Amazon FBA business depends on individual business and terms of the deal. Generally though, larger deals (over $1 million) will take longer to sell than smaller deals (under $200k) because of the complexity of the business and also the risk that a buyer is taking.
The graph below represents the summary of all the deals that we have completed and the time it took to complete them on average. As you can see, over 50% of deals close within 90 days and over 70% close within four months.
Who will buy my Amazon FBA business?
There are really 3 main types of buyers of Amazon FBA business that we have seen to date and they are the following:
- Corporate Guy – This is someone looking to buy his or her first business. They usually are a high paid employee or C-level executive with disposable cash, IRA, savings or access to an SBA loan.
- Internet Entrepreneur – Individuals who have been in the industry for a while and have a good understanding as to what it takes to run a digital business. They are either fresh off the sale of their last business or looking to add a business to their portfolio.
- Brick and Mortar Entrepreneur – Generally brick and mortar entrepreneurs who have exited or still own their company and are looking for a move into the digital space